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entitled 'Clean Water Infrastructure: A Variety of Issues Need to Be
Considered When Designing a Clean Water Trust Fund' which was released
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
May 2009:
Clean Water Infrastructure:
A Variety of Issues Need to Be Considered When Designing a Clean Water
Trust Fund:
GAO-09-657:
GAO Highlights:
Highlights of GAO-09-657, a report to congressional requesters.
Why GAO Did This Study:
The Environmental Protection Agency (EPA) has estimated that a
potential gap between future needs and current spending for wastewater
infrastructure of $150 billion to $400 billion could occur over the
next decade. A number of entities are involved in planning, financing,
building, and operating this infrastructure. Some of these stakeholders
have suggested a variety of approaches to bridge this potential gap.
One such proposal is to establish a clean water trust fund. In this
context, GAO was asked to (1) obtain stakeholders’ views on the issues
that would need to be addressed in designing and establishing a clean
water trust fund and (2) identify and describe potential options that
could generate about $10 billion in revenue to support a clean water
trust fund. In conducting this review, GAO administered a questionnaire
to 28 national organizations representing the wastewater and drinking
water industries, state and local governments, engineers, and
environmental groups and received 22 responses; reviewed proposals and
industry papers; interviewed federal, state, local, and industry
officials; and used the most current data available to estimate the
revenue that could potentially be raised by various taxes on a range of
products and activities.
GAO is not making any recommendations. While this report identifies a
number of funding options, GAO is not endorsing any option and does not
have a position on whether or not a trust fund should be established.
What GAO Found:
In designing and establishing a clean water trust fund, stakeholders
identified three main issues that would need to be addressed: how a
trust fund should be administered and used; what type of financial
assistance should be provided; and what activities should be eligible
to receive funding from a trust fund. While a majority of stakeholders
said that a trust fund should be administered through an EPA
partnership with the states, they differed in their views on how a
trust fund should be used. About a third of stakeholders responded that
a trust fund should be used only to fund the existing Clean Water State
Revolving Fund (CWSRF), which is currently funded primarily through
federal appropriations, while a few said it should support only a new
and separate wastewater program. A few stakeholders supported using a
trust fund to support both the CWSRF and a separate program, while
others did not support the establishment of a trust fund at all. In
addition, more than half of the stakeholders responded that financial
assistance should be distributed using a combination of loans and
grants to address the needs of different localities. Finally, although
a variety of activities could be funded, most stakeholders identified
capital projects as the primary activity that should receive funding
from a clean water trust fund.
A number of options have been proposed in the past to generate revenue
for a clean water trust fund, but several obstacles will have to be
overcome in implementing these options, and it may be difficult to
generate $10 billion from any one option by itself. Funding options
include a variety of excise taxes as shown in the table below.
Table: Estimated Revenue from Excise Taxes on Products That May
Contribute to the Wastewater Stream (in millions of 2009 Dollars):
Product groups: Beverages;
Tax base: $95,551;
1% tax: $956;
5% tax: $4,778;
10% tax: $9,555;
Tax rate to generate $10 billion: 10.5%.
Product groups: Fertilizers and pesticides;
Tax base: $26,088;
1% tax: $261;
5% tax: $1,304;
10% tax: $2,609;
Tax rate to generate $10 billion: 38.3%.
Product groups: Flushable products, including soaps, detergents,
cooking oils, and toiletries;
Tax base: $63,241;
1% tax: $632;
5% tax: $3,162;
10% tax: $6,324;
Tax rate to generate $10 billion: 15.8%.
Product groups: Pharmaceuticals;
Tax base: $156,069;
1% tax: $1,561;
5% tax: $7,803;
10% tax: $15,607;
Tax rate to generate $10 billion: 6.4%.
Product groups: Water appliances and plumbing fixtures;
Tax base: $25,517;
1% tax: $255;
5% tax: $1,276;
10% tax: $2,552;
Tax rate to generate $10 billion: 39.2%.
Source: GAO analysis of U.S. Census Bureau data from the 2006 Annual
Survey of Manufactures and Foreign Trade Division.
[End of table]
In addition, Congress could levy a tax on corporate income. An
additional 0.1 percent corporate income tax could raise about $1.4
billion annually. Congress also could levy a water use tax. A tax of
0.01 cent per gallon could raise about $1.3 billion annually.
Regardless of the options selected, certain implementation obstacles
will have to be overcome. These include defining the products or
activities to be taxed, establishing a collection and enforcement
framework, and obtaining stakeholder support for a particular option or
mix of options.
View [hyperlink, http://www.gao.gov/products/GAO-09-657] or key
components. For more information, contact Anu Mittal at (202) 512-3841
or mittala@gao.gov.
[End of section]
Contents:
Letter:
Background:
Stakeholders Identified Three Key Issues That Would Need to Be
Addressed in Designing and Establishing a Clean Water Trust Fund:
Various Options for Funding a Clean Water Trust Fund Could Generate a
Range of Revenues, but Each Option Poses Certain Obstacles:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Summary of Stakeholder Responses to Questionnaire:
Appendix III: Stakeholders Responding to Questionnaire on a National
Clean Water Trust Fund:
Appendix IV: Estimated Tax Bases for Excise Tax Funding Options:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Product Groups that May Contribute to the Wastewater Stream:
Table 2: Tax Bases for Product Groups and Estimated Revenue from Range
of Excise Tax Rates, in Constant 2009 Dollars:
Table 3: Stakeholder Support for Excise Taxes:
Table 4: Stakeholder Views on the Extent of the Connection between
Wastewater Infrastructure Use and Product Groups:
Table 5: Stakeholder and Industry Reasons for Support or Opposition to
Excise Taxes on Specific Product Groups Along with Views of Utility
Operators:
Table 6: Stakeholder Views on Administration:
Table 7: Stakeholder Views on Use of a Trust Fund:
Table 8: Stakeholder Views on Funding Distribution:
Table 9: Stakeholder Views on What Activities Should be Eligible for
Funds:
Table 10: Stakeholder Views on Eligible Capital Costs:
Table 11: Stakeholder Views on Eligibility for Funds:
Table 12: Stakeholder Support for Funding Options:
Table 13: Stakeholder Views on Funding Options:
Table 14: Estimated Tax Bases for Excise Tax Funding Options:
Figure:
Figure 1: Stakeholder Views on How a Trust Fund Should Be Used:
Abbreviations:
CBO: Congressional Budget Office:
CEIT: Corporate Environmental Income Tax:
Census: U.S. Census Bureau:
CWSRF: Clean Water State Revolving Fund:
EPA: Environmental Protection Agency:
EPCRA: Emergency Planning and Community Right to Know Act:
IRS: Internal Revenue Service:
NAICS: North American Industry Classification System:
NPDES: National Pollutant Discharge Elimination System:
TRI: Toxics Release Inventory:
USGS: United States Geological Survey:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 29, 2009:
The Honorable James L. Oberstar:
Chairman:
The Honorable John L. Mica:
Ranking Member:
Committee on Transportation and Infrastructure:
House of Representatives:
The Honorable Eddie Bernice Johnson:
Chairwoman:
Subcommittee on Water Resources and Environment:
Committee on Transportation and Infrastructure:
House of Representatives:
The Honorable Earl Blumenauer:
House of Representatives:
More than 220 million people in the United States are served by
wastewater systems that are composed primarily of a network of sewer
pipes and treatment plants that carry and treat wastewater before it is
discharged into surface water. Many of these systems were constructed
more than 50 years ago and are reaching the end of their useful lives.
In addition to the deterioration in the condition of this
infrastructure, some of these systems also lack the capacity to
adequately treat increasingly large volumes of wastewater, particularly
during periods of wet weather. As a result, these systems are releasing
large quantities of untreated wastewater into surface waters, which can
pose a threat to human and aquatic health. For example, according to
Environmental Protection Agency (EPA) estimates, wastewater systems
annually discharge over 850 billion gallons of untreated sewage into
U.S. surface waters. Although federal, state, and local governments
invest billions of dollars annually in wastewater infrastructure--a
total of about $40 billion in 2006--EPA and others have estimated that
current spending levels may not be adequate to cover the costs of
maintaining and replacing pipes, treatment plants, and other parts of
this infrastructure. According to EPA's estimates, a potential gap of
about $150 billion to $400 billion between projected future
infrastructure needs and current levels of spending could occur over
the next decade.[Footnote 1] Without additional investment in the
nation's wastewater infrastructure, EPA and other groups have asserted
that the environmental and public health gains made under the Clean
Water Act[Footnote 2] during the last three decades could be at risk.
A variety of approaches have been proposed to help bridge a potential
gap between projected future infrastructure needs and current levels of
spending. For example, one approach would be to increase federal
funding for the Clean Water State Revolving Fund (CWSRF) program, which
is the largest source of federal assistance for wastewater
infrastructure. About $689 million was appropriated in both fiscal
years 2008 and 2009 for the CWSRF program, and an additional $4 billion
was appropriated by the American Recovery and Reinvestment Act of 2009.
[Footnote 3] Under the CWSRF program, EPA provides capitalization
grants to the states, which in turn use these funds to make loans to
local communities or utilities for various water quality projects. As
loans are repaid, the funds are cycled back into the state-level
programs to fund additional projects. New funding for the CWSRF program
is dependent on federal appropriations. In addition, EPA has promoted
its sustainable infrastructure initiative for water infrastructure
management, called the Four Pillars, to help meet infrastructure needs.
Among other things, the Four Pillars calls for wastewater and drinking
water utilities to charge rates for the service they provide that are
high enough to enable them to fund future capital needs in addition to
their routine operations and maintenance. Still another approach that
has been considered to bridge a potential gap between projected future
infrastructure needs and current spending levels is to establish a
clean water trust fund. In general, federal trust funds collect revenue
and distribute funds that have been set aside for specific purposes. A
clean water trust fund would provide a dedicated source of funding for
wastewater infrastructure that would be similar to some of the trust
funds that Congress has established for other infrastructure and
environmental programs, such as highway infrastructure construction and
coastal wetlands restoration. Some of the revenue for federal trust
funds is generated through federal excise taxes on specific products
and services.[Footnote 4]
In this context, you asked us to provide information on the issues that
would need to be addressed if Congress decided to establish a clean
water trust fund to help meet the potential gap between projected
future wastewater infrastructure needs and current spending levels.
Specifically, this report (1) describes stakeholders' views on the
issues that would need to be addressed in designing and establishing a
clean water trust fund and (2) identifies and describes potential
options that Congress could consider that could generate revenues of
$10 billion annually to support a clean water trust fund.
To determine stakeholders' views on the issues that would need to be
addressed in designing and establishing a clean water trust fund, we
reviewed past legislative proposals and wastewater industry position
papers on establishing such a fund. In addition, we interviewed a
variety of stakeholders, both individuals and groups, with knowledge of
wastewater infrastructure issues, including those from the wastewater
industry and federal, state, and local government. Based on the
information gathered from these interviews, we developed and
administered a questionnaire to obtain the views of these and other
stakeholders on the issues that need to be addressed in designing and
establishing a trust fund. We sent this questionnaire to national
organizations representing the wastewater industry, drinking water
industry, state and local governments, engineers, and environmental
groups. We sent out 28 questionnaires and received 22 responses, for a
response rate of 79 percent. Some stakeholders did not answer all of
the questions on the questionnaire, so the number of responses for each
question can vary. We also reviewed reports and documents on the CWSRF
and interviewed federal and state officials responsible for
implementing this program to gain an understanding for how this program
might interact with a clean water trust fund. Finally, we visited three
states--Arizona, Maryland, and Wisconsin--and the District of Columbia,
where we interviewed state and local officials about their wastewater
infrastructure needs and how a clean water trust fund could be designed
to meet these needs. We chose these locations because they were
geographically dispersed, had different wastewater infrastructure
needs, and used various approaches to finance wastewater projects.
To identify potential options for funding a clean water trust fund that
could generate $10 billion annually, we reviewed past legislative
proposals and position papers from wastewater industry groups that
discussed specific funding options. We also reviewed reports on how
existing federal environmental and infrastructure trust funds are
funded and conducted Internet searches to identify funding options that
states are using to finance wastewater projects. We used our
questionnaire to gauge stakeholders' support for various funding
options for a clean water trust fund and to obtain their views on the
extent of the connection between these funding options and wastewater
infrastructure use. In addition, we interviewed federal and state
officials to identify the challenges likely to be associated with
implementing these funding options. To estimate the revenue that these
options could potentially generate, we used the most recent government
data available to estimate the value of products or activities that
could be subject to a federal tax and applied a range of tax rates to
these values based on current or past taxation policies. The estimates
presented in our report are not official revenue estimates as would be
prepared by the Joint Committee on Taxation, and they are subject to
various limitations. For example, we did not model or estimate consumer
or market responses to these funding options, possible noncompliance,
or the cost of implementing and enforcing these options. As a result,
our revenue estimates may be higher than actual receipts that would be
generated from these funding options. Moreover, we do not endorse any
option and do not have a position on whether or not a clean water trust
fund should be established.
A more detailed description of our scope and methodology is presented
in appendix I. We conducted our work from June 2008 to May 2009 in
accordance with all sections of GAO's quality assurance framework that
are relevant to our objectives. The framework requires that we plan and
perform the engagement to obtain sufficient and appropriate evidence to
meet our stated objectives and to discuss any limitations in our work.
We believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions.
Background:
Americans rely on wastewater systems to protect public health and the
environment. These systems are composed of a network of pipes, pumps,
and treatment facilities that collect and treat wastewater from homes,
businesses, and industries before it is discharged to surface waters.
EPA sets standards for the quality of wastewater that can be discharged
under the Clean Water Act.[Footnote 5] Under this law, the National
Pollutant Discharge Elimination System (NPDES) program limits the types
and amounts of pollutants that industrial and municipal wastewater
treatment facilities may discharge into the nation's surface waters.
During the wastewater treatment process, solid materials, such as sand
and grit; organic matter from sewage; and other pollutants are removed
from wastewater before it is discharged to surface waters. This
treatment helps to ensure that the quality of surface water is not
degraded and that it can continue to be used for drinking water,
fishing, and swimming. About 16,000 publicly owned wastewater treatment
plants exist in the United States, and the American Society of Civil
Engineers estimates that between 600,000 and 800,000 miles of sewer
pipe help to deliver wastewater to these treatment plants. These
systems are primarily publicly owned and provide wastewater service to
more than 220 million Americans.
Local communities have the primary responsibility to provide funding
for wastewater infrastructure. According to U.S. Census Bureau (Census)
estimates, in fiscal year 2006[Footnote 6] local communities spent
about $38 billion on wastewater operations and capital projects, while
states spent about $1.3 billion. In addition, the federal government
provides financial assistance for wastewater infrastructure, with EPA
providing the largest amount through its CWSRF program. Under the CWSRF
program, which was established in 1987, the federal government provides
capitalization grants to states, which in turn must match at least 20
percent of the federal grants. The states then use the money to provide
low-interest loans to fund a variety of water quality projects, and
loan repayments are cycled back into the program to be loaned out for
other projects. In 2007, states provided CWSRF loans totaling about
$5.3 billion to communities and other recipients.
Several studies have documented the deterioration in the condition of
the U.S. wastewater infrastructure. According to EPA, the majority of
the nation's sewer pipe network was installed after World War II and is
reaching the end of its useful life. Similarly, many of the wastewater
treatment plants that were upgraded in the 1970s to comply with the
Clean Water Act are aging and will need to be upgraded or replaced in
the future. The American Society of Civil Engineers recently described
the condition of the nation's wastewater infrastructure as "poor," and
cited a lack of investment in critical components of this
infrastructure as a contributing factor to this condition.[Footnote 7]
The deteriorating condition of the nation's wastewater infrastructure
has direct impacts on human and aquatic health. Specifically, many
older wastewater systems lack the capacity to treat increasingly large
volumes of wastewater, particularly during periods of wet weather. In
addition, cracks in sewer pipes allow rain or snowmelt to enter the
wastewater system and overwhelm its capacity to adequately treat
wastewater. Untreated wastewater can be released during the resulting
sewer overflows associated with these wet weather events and introduce
significant levels of pollution into local water bodies, which can pose
risks to human health and result in beach closures and fish kills. EPA
estimates that over 850 billion gallons of untreated wastewater are
released annually into U.S. surface waters.
Although local, state, and federal governments have invested billions
in wastewater infrastructure over the years, studies by EPA and the
Congressional Budget Office (CBO) suggest a potential gap exists
between what is currently being spent on wastewater infrastructure and
estimated future infrastructure needs. EPA's 2002 analysis estimated a
potential gap for wastewater infrastructure capital improvements, along
with operations and maintenance, of about $150 billion to $400 billion
over the period from 2000 to 2019.[Footnote 8] CBO estimated a gap of
about $60 billion to $220 billion in capital funding alone over this
same period.[Footnote 9] Without additional investment in the nation's
wastewater infrastructure, EPA and other groups have asserted that the
environmental and public health gains made under the Clean Water Act
during the last three decades could be at risk. However, these studies
by EPA and CBO note that this gap is not inevitable, and policy makers
and wastewater groups have proposed a variety of approaches to help
bridge this gap, including the following:[Footnote 10]
* Implement EPA's Sustainable Water Infrastructure Initiative. This
initiative, which is called the Four Pillars, encourages wastewater and
drinking water utilities to improve the management of their systems, to
systematically plan ahead for infrastructure needs, and to charge the
full cost of the service they provide to customers. Charging the full
cost would require utilities to charge prices that reflect the costs of
building, maintaining, and operating a wastewater system over the long
term.[Footnote 11]
* Increase funding for the CWSRF. Federal CWSRF capitalization grants
to the states had been declining in recent years, despite growing
wastewater infrastructure needs. In both fiscal years 2008 and 2009,
$689 million was appropriated for the CWSRF program, which was below
the average from 2000 to 2007 of about $1.2 billion. Some proponents of
the CWSRF have recommended increasing federal appropriations for this
program and the program has recently received additional federal
funding. The American Recovery and Reinvestment Act of 2009
appropriated $4 billion in funding for the CWSRF program, and the
President's budget request for fiscal year 2010 asks for an increase in
funding for the program. In addition, some have suggested increasing
the pool of available CWSRF funds by encouraging more states to use
their federal capitalization grants as collateral in the public bond
market.[Footnote 12] This practice, known as "leveraging" allows states
to borrow additional money to lend out through the CWSRF. Currently,
about 27 states leverage their capitalization grants.
* Establish a national infrastructure bank. Three bills were introduced
in the 110th Congress that proposed establishing a national
infrastructure bank or other entity that would provide financing for a
variety of infrastructure projects, including wastewater infrastructure
projects.[Footnote 13] This entity would independently evaluate
projects and determine the most appropriate way--through loans, grants,
or other financial tools--to finance them.
* Encourage public-private partnerships. Historically, wastewater
infrastructure has commonly been owned and operated by public entities,
such as local municipalities. However, other approaches exist where
private entities can provide services such as designing, constructing,
or operating infrastructure projects, including wastewater systems. In
recent years, these partnerships have become more common in the
transportation sector.[Footnote 14]
* Lift private activity bond restrictions on wastewater projects.
Private activity bonds are tax-exempt bonds issued by state or local
governments to provide special financing benefits for qualified
projects. These bonds are used to provide financing to private
businesses for certain facilities, such as airports, electric and gas
distribution systems, mass transit systems, solid waste disposal sites,
and wastewater plants. Because private activity bonds are exempt from
federal tax, states and municipalities can borrow money at lower
interest rates. However, states are limited in the amount of private
activity bonds that they can issue annually. While certain projects
such as airports and solid waste disposal facilities are exempt from
this cap, wastewater infrastructure facilities are subject to this cap.
Removing this restriction could increase the level of low-interest
financing available for wastewater projects.[Footnote 15]
* Create a federal clean water trust fund. Establishing a clean water
trust fund could help to provide a dedicated source of federal funding
for wastewater infrastructure. Federal trust funds, such as the Highway
and the Airport and Airways Trust Funds, are used to account for funds
that are dedicated for spending on a specific purpose. Unlike trustees
of private trust funds, a federal agency may exercise a greater degree
of control over its trust fund. As authorized by law, the federal
government may control the fund as well as its earnings and raise or
lower future trust fund collections and payments or change the purposes
for which collections are used.
Stakeholders Identified Three Key Issues That Would Need to Be
Addressed in Designing and Establishing a Clean Water Trust Fund:
Three main issues would need to be addressed in designing and
establishing a clean water trust fund, according to stakeholders.
[Footnote 16] These issues include: how a trust fund should be
administered and used; what type of financial assistance should be
provided for projects; and what activities should be eligible for
funding.
Administration and use of a trust fund. Stakeholders told us that
designing a clean water trust fund would involve deciding what agency
or entity would administer the fund and whether the trust fund would be
used to fund the CWSRF or a separate program. A majority of
stakeholders (15 of 20) responding to our questionnaire expressed the
view that a trust fund should be administered through an EPA-state
partnership like the current CWSRF program.[Footnote 17] However, as
figure 1 shows, stakeholders differed in their views on how a trust
fund should be used.
Figure 1: Stakeholder Views on How a Trust Fund Should Be Used:
[Refer to PDF for image: horizontal bar graph]
Stakeholder view: Only to fund the CWSRF;
Number of stakeholders: 7.
Stakeholder view: To fund a separate and distinct program;
Number of stakeholders: 3.
Stakeholder view: To fund both the CWSRF and a separate and distinct
program;
Number of stakeholders: 5.
Stakeholder view: A trust fund should not be created;
Number of stakeholders: 3.
Stakeholder view: Other;
Number of stakeholders: 2.
Source: GAO analysis of stakeholder responses. For additional
information on stakeholder views, see appendix II.
[End of figure]
About a third of stakeholders (7 of the 20) expressed the view that a
trust fund should be used only to fund the existing CWSRF. Stakeholders
cited several reasons for this view, including their interest in
building on the success of the CWSRF program, avoiding the redundant
administrative costs associated with establishing a new wastewater
infrastructure program, and providing a dedicated funding source to
increase available funding for the CWSRF program.
Three of 20 stakeholders that responded to our questionnaire said that
a trust fund should not be used to support the existing CWSRF, but
rather to fund a separate and distinct wastewater infrastructure
program. One of these stakeholders told us that the CWSRF does not
prioritize funding to wastewater systems with the greatest needs.
Stakeholders we interviewed said that CWSRF loan amounts can sometimes
be inadequate to meet the needs of large urban areas that have large
and costly infrastructure projects and that smaller communities may
lack the administrative capacity to go through the process of applying
for a CWSRF loan. In addition, our past work has found that states vary
in the way they allocate CWSRF funds for small or economically
disadvantaged communities and that some states have placed limits on
the amount of CWSRF funding any one borrower can receive in a single
year.[Footnote 18]
Twenty-five percent of questionnaire respondents (5 of 20) supported
using a trust fund to both fund the CWSRF and establish a separate and
distinct program. These stakeholders said the CWSRF needed a dedicated
source of funding, but that the flexibility of a new program could help
to address some of the CWSRF's limitations.
Finally, 3 of 20 stakeholders responding to our questionnaire were
opposed to the creation of a clean water trust fund to support the
nation's wastewater infrastructure. According to these stakeholders,
utilities should be self-sustaining through the rates they charge their
customers and by more efficiently managing their systems. These
stakeholders also attribute the potential gap between projected future
wastewater infrastructure needs and current spending to the reluctance
of wastewater utilities to charge the full cost of the services they
provide. Charging the full cost would require utilities to charge
prices that reflect the costs of building, maintaining, and operating a
wastewater system over the long term. Our past work has highlighted
similar concerns with the management of local wastewater utilities.
Specifically, we found that many utilities were not routinely charging
the full cost for wastewater services and that the practice of
systematically identifying and planning for infrastructure
improvements, known as asset management, could help utilities better
address their infrastructure needs.[Footnote 19]
Type of financial assistance. Another design issue that stakeholders
identified was specifying the type of assistance--grants or loans--that
a clean water trust fund would provide. Over half of the stakeholders
responding to our questionnaire (13 of 21) favored distributing funding
to wastewater infrastructure projects using a combination of loans and
grants. According to many of these stakeholders, the type of assistance
provided by a trust fund should be tailored to the applicant's needs
and capacity. Some of these stakeholders explained that while some
communities can take on debt and pay back loans for wastewater
projects, others may need grants because they are unable to pay back
loans. Other stakeholders who we talked to also stated that loans
impose discipline on borrowers, who are responsible for repayment, but
that grants may be needed for certain communities that cannot make loan
repayments, such as those with declining or low-income populations.
These stakeholder views are consistent with some of the policy debate
surrounding the reauthorization of the CWSRF, in which certain groups
have supported the distribution of grants, as well as loans, for
certain wastewater projects, through the CWSRF as is currently allowed
under the Drinking Water State Revolving Fund. A provision allowing
some funding to be distributed as grants would be similar to recent
legislation; specifically, some of the funding provided to the CWSRF by
the 2009 American Recovery and Reinvestment Act can be distributed in
the form of grants.
In contrast, 3 of 21 stakeholders who responded to our questionnaire
told us that funding to support wastewater infrastructure projects
should be distributed using loans only while 2 said that only grants
should be used. The stakeholders supporting the use of loans said that
the funds from the repayment of these loans provide a source of funding
to meet future infrastructure needs, and that below-market interest
rates can be offered on these loans as an affordable way for
communities to fund wastewater infrastructure. One of the stakeholders
who said that funding to support wastewater infrastructure projects
should be distributed using grants stated that a grant program will
help lower costs for municipalities and allow them to offer more
affordable wastewater utility rates.
Eligible activities. Finally, stakeholders said that designing and
implementing a clean water trust fund would involve determining the
type of wastewater infrastructure activities that the fund would
support. Most stakeholders who responded to our questionnaire supported
using a trust fund for planning and designing wastewater projects (18
of 21) and for capital costs (19 of 21). Some stakeholders noted that
these two activities are closely linked--planning and designing are
essential components of carrying out capital projects. Stakeholders
that supported using the trust fund for capital costs identified many
of the activities that are currently eligible for funding under the
CWSRF as those that should be eligible to receive support under a clean
water trust fund. These activities include expanding wastewater systems
to meet existing needs, replacing or rehabilitating wastewater
collection systems or treatment facilities, and correcting wastewater
overflows from wastewater systems. Many of these stakeholders said that
capital costs should be given priority because these are major costs
and represent the most pressing needs for utilities. Moreover,
according to some stakeholders, capital costs should be eligible for
funding because communities may incur significant costs when upgrading
or rehabilitating their wastewater systems in order to comply with
Clean Water Act requirements or other federal mandates. In addition to
capital costs, stakeholders identified other activities that should be
eligible for funding, including providing rate-payer assistance to low-
income households, supporting green infrastructure and nonpoint source
pollution projects, and training wastewater plant operators. Only 2
stakeholders responded that a trust fund should be used to support
operations and maintenance for wastewater utilities.
Appendix II provides the full range of stakeholder responses to the
questionnaire on design issues. Appendix III provides a list of
stakeholder groups that responded to our questionnaire.
Various Options for Funding a Clean Water Trust Fund Could Generate a
Range of Revenues, but Each Option Poses Certain Obstacles:
Although a variety of options have been proposed in the past to
generate revenue for a clean water trust fund, generating $10 billion
from any one of these alone may be difficult. In addition, each funding
option poses various implementation challenges, including defining the
products or activities to be taxed, establishing a collection and
enforcement framework, and obtaining stakeholder support.
A Variety of Options Are Available That Could Generate a Range of
Revenue to Support a Trust Fund:
Various funding options, including excise taxes on products that may
contribute to the wastewater stream, an additional tax on corporate
income, a water use tax, and an industrial discharge tax, could
generate a range of revenues for a clean water trust fund. However, it
may be difficult to raise $10 billion for a clean water trust fund from
any one of these options because of the small size of the tax bases of
many of these options.
Excise Taxes on Products That May Contribute to the Wastewater Stream:
Excise taxes on products that may contribute to the wastewater stream
could be used to generate revenue for a clean water trust fund. These
products include beverages, fertilizers and pesticides, flushable
products, pharmaceuticals, and water appliances and plumbing fixtures.
While past proposals for funding a clean water trust fund have
identified these products as contributing to the wastewater stream,
limited research has been done on their specific impact on wastewater
infrastructure, according to EPA.[Footnote 20] See table 1 for a
description of these product groups and how these products may
contribute to the wastewater stream.
Table 1: Product Groups that May Contribute to the Wastewater Stream:
Product group: Beverages;
Description: Products include soft drinks, bottled water, ice, beer,
wine, and liquor. After consumption, beverages as well as their
containers can end up in the wastewater stream.
Product group: Fertilizers and pesticides;
Description: Products include substances used to fertilize soil or
control plant or animal pests. Fertilizers and pesticides can
contribute to nonpoint source pollution--pollution that comes from
diffuse sources when rain or snowmelt washes pollutants off the ground.
For example, fertilizers can introduce large amounts of nutrients such
as nitrogen and phosphorous into water bodies, leading to excessive
growth of algae, which in turn blocks out sunlight and decreases
dissolved oxygen in water, a necessity for plants and other aquatic
life. Pesticides can introduce harmful chemicals into water bodies as
well. In 2009, EPA reported that agriculture was a leading source of
water impairments in a sample of the nation's rivers, streams, lakes,
ponds, and reservoirs.[A]
Product group: Flushable products;
Description: Products include soaps and detergents; cooking oils; and
shampoos, lotions, and perfumes. Some of these products can introduce
pollutants into the wastewater stream. For example, some dishwashing
detergents contain phosphorous, a nutrient that in excessive quantities
can lead to excessive growth of algae in surface waters. In addition, a
2002 study by United States Geological Survey (USGS) detected household
chemicals found in detergents, soaps, and cosmetics in streams that
received discharge from wastewater treatment plants.[B] Cooking oils
also can cause pipe blockages.
Product group: Pharmaceuticals;
Description: Products include over-the-counter and prescription drugs.
When consumed, pharmaceuticals are not entirely absorbed by the body
and can be excreted into wastewater. In addition, some pharmaceuticals
are flushed down the toilet for disposal. According to EPA, studies
have shown that pharmaceuticals are currently present in our water
bodies, and some may cause ecological harm. For example, a 2002 study
by USGS detected chemicals, including pharmaceuticals, in streams that
receive discharge from wastewater treatment plants.[B] Currently,
wastewater systems are not equipped to remove pharmaceuticals, and
additional research is needed to better understand the impact of
pharmaceuticals on wastewater and the environment.
Product group: Water appliances and plumbing fixtures;
Description: Products include dishwashers, washing machines, and other
plumbing fixtures. These products typically introduce wastewater into
the system. The volume of wastewater that a utility must treat impacts
the capacity of the wastewater plant needed.
Source: GAO summary of EPA and USGS reports along with interviews with
stakeholders.
[A] EPA, National Water Quality Inventory: Report to Congress 2004
Reporting Cycle (Washington, D.C., January 2009).
[B] USGS, Pharmaceuticals, Hormones, and Other Organic Wastewater
Contaminants in US Streams, USGS Fact Sheet FS-027-02, June 2002.
[End of table]
The tax base for each group of products in 2006--the value of products
manufactured domestically as well as those imported, but excluding
exports--varied from about $26 billion for water appliances and
plumbing fixtures to about $156 billion for pharmaceuticals, after
adjusting these tax bases to 2009 dollars. In addition, raising $10
billion from a tax on any individual product group would require tax
rates varying from a low of 6.4 percent for pharmaceuticals to a high
of 39.2 percent for water appliances and fixtures.[Footnote 21]
Alternatively, a lower tax rate could be levied on a number of these
product groups that would collectively generate about $10 billion.
Table 2 shows the tax bases for the product groups along with the
revenue that could be generated from a range of tax rates. Appendix IV
presents additional information on the tax bases for these funding
options.
Table 2: Tax Bases for Product Groups and Estimated Revenue from Range
of Excise Tax Rates, in Constant 2009 Dollars (Dollars in millions)
Product groups: Beverages;
Tax base: $95,551;
1% tax: $956;
5% tax: $4,778;
10% tax: $9,555;
Tax rate to generate $10 billion: 10.5%.
Product groups: Fertilizers and pesticides;
Tax base: $26,088;
1% tax: $261;
5% tax: $1,304;
10% tax: $2,609;
Tax rate to generate $10 billion: 38.3%.
Product groups: Flushable products, including soaps, detergents,
cooking oils, and toiletries;
Tax base: $63,241;
1% tax: $632;
5% tax: $3,162;
10% tax: $6,324;
Tax rate to generate $10 billion: 15.8%.
Product groups: Pharmaceuticals;
Tax base: $156,069;
1% tax: $1,561;
5% tax: $7,803;
10% tax: $15,607;
Tax rate to generate $10 billion: 6.4%.
Product groups: Water appliances and plumbing fixtures;
Tax base: $25,517;
1% tax: $255;
5% tax: $1,276;
10% tax: $2,552;
Tax rate to generate $10 billion: 39.2%.
Source: GAO analysis of U.S. Census Bureau data from the 2006 Annual
Survey of Manufactures and Foreign Trade Division.
[End of table]
Alternatively, a per unit excise tax could be levied on these products.
For example, according to the Container Recycling Institute, there were
about 215 billion bottled and canned beverages sold in 2006.[Footnote
22] Levying a 1 cent tax on these bottles and cans could yield about
$2.2 billion, and raising $10 billion would require a tax of about 5
cents.
Additional Tax on Corporate Income:
Another option that could be used to fund a clean water trust fund is
to levy an additional tax on the incomes of corporations. This tax
would be similar to the Corporate Environmental Income Tax (CEIT) that
helped fund the Superfund program until 1995.[Footnote 23] Increasing
the current corporate income tax by levying an additional 0.1 percent
on the $1.4 trillion in corporate taxable income reported in 2006,
after adjusting for inflation, could raise about $1.4 billion annually.
Higher tax rates would need to be levied to generate a larger amount of
revenue. For example, a 0.5 percent tax could raise $6.9 billion and to
raise $10 billion from this option, an additional tax of about 0.7
percent would need to be levied. However, this level of taxation would
exceed the 0.12 percent CEIT that was in place under Superfund when it
expired in December 1995.
Water Use Tax:
Another option to fund a clean water trust fund is a tax on water
usage. A tax on water use could involve a volume-based charge or a flat
charge added to local residential, commercial, and industrial water
utility rates paid by water customers. For a volume-based charge,
levying a tax of 0.01 cent per gallon on the 13.4 trillion gallons of
water that were delivered to domestic, commercial, and industrial users
from public supplies in 2000 could raise $1.3 billion annually, while a
tax of about 0.1 cent per gallon could raise about $13 billion
annually.[Footnote 24] Alternatively, a flat charge could be added to
household wastewater bills, similar to Maryland, which charges
households $30 annually to help fund wastewater infrastructure in the
state.[Footnote 25] At a national level, imposing a flat charge of $30
annually on the approximately 86 million households that receive
wastewater service from wastewater utilities could raise about $2.6
billion annually. Raising $10 billion from a flat charge on households
would require a charge of about $116 per year per household.[Footnote
26] Based on EPA estimates from 2003, American households paid about
$474 annually for water and wastewater services; therefore, imposing an
annual charge of $116 on households would represent an approximately 25
percent increase in customers' water and wastewater bills.
Industrial Discharge Tax:
A final option that we identified that could raise revenue to fund a
clean water trust fund is an industrial discharge tax. A tax on
industrial discharge could potentially be levied in two ways. The first
would be to levy a fee on National Pollutant Discharge Elimination
System (NPDES) permits. These permits, required under the Clean Water
Act, allow a point source to discharge specified pollutants into
federally regulated waters. A second approach would be to levy a tax on
toxic chemical releases to water reported by industrial facilities to
the Toxics Release Inventory (TRI), which contains data on the
quantities of toxic discharges to air, water, or land for 581 chemicals
and 30 chemical categories.[Footnote 27] However, it is unclear what
level of taxation could be levied to generate $10 billion from either
of these approaches because of data limitations. Specifically, EPA
lacks complete and reliable data on the number of NPDES permits issued
nationwide. Similarly, EPA does not have complete data on all of the
toxic releases because TRI data are based on self-reporting by
facilities that release chemicals above certain thresholds. In
addition, these reports can be based on estimates of their toxic
releases instead of actual measurements.[Footnote 28]
Each Funding Option Poses Certain Implementation Challenges:
Implementing any of the funding options discussed above poses a variety
of challenges, including defining the products or activities to be
taxed and establishing a collection and enforcement framework,
according to interviews we had with agency officials and other
stakeholders.
Excise Taxes on Products That May Contribute to the Wastewater Stream:
According to Internal Revenue Service (IRS) officials, implementing
excise taxes on products requires the agency to develop clear and
precise definitions of the products to be taxed, as authorized by
Congress. These definitions determine whether taxpayers are required to
pay excise taxes and how much tax they owe. In implementing excise
taxes in the past, the IRS has developed these definitions after
receiving comments from relevant industries. As part of this process, a
decision also would need to be made regarding whether the tax would be
levied on a per unit basis or a percentage of sales basis. Of the $71.3
billion that the federal government collected from federal excise taxes
in 2007, many items are taxed on a per unit basis--a gallon of
gasoline, for example--but some items are taxed on a percentage of
sales--such as an airline ticket, which is taxed at 7.5 percent of the
ticket price. The larger the number of taxable products covered by an
excise tax, the greater the challenge of defining these products,
according to IRS officials. In addition, any exemptions to the excise
tax would also need to be defined. According to IRS officials, a large
number of exemptions could present additional implementation challenges
because the agency would have to process applications from taxpayers
seeking refunds for taxes paid on exempted products. IRS officials told
us that the administrative costs associated with designing and
implementing any new excise taxes could be substantial and this process
could take more than a year to complete.
In addition, once the taxable product(s) have been defined, IRS also
would need to modify its excise tax collection and enforcement
framework. Implementing new excise taxes would require the IRS to
update the forms currently used to submit excise taxes and its computer
systems to document these receipts, as well as training agency staff on
administering the new excise taxes. Moreover, implementing new taxes
would increase the auditing and enforcement responsibility of the IRS.
In addition, to increase compliance the IRS conducts outreach to those
who would be required to pay these excise taxes. All of these
activities--making changes to forms and computer systems, training
staff, and conducting outreach--would need to occur well in advance of
the start of the tax filing season to eliminate possible confusion and
could increase the agency's administrative costs, according to IRS
officials. In addition, the challenge in collecting and enforcing
excise taxes can be impacted by the point at which the tax is collected
and the number of taxpayers. According to IRS officials, collecting and
enforcing an excise tax at the manufacturing level is preferable
because it involves fewer taxpayers than a tax that is levied at the
retail level.
Additional Tax on Corporate Income:
According to IRS officials, implementing an additional tax on corporate
income would require defining the types of corporations and the
portions of their income that would be subject to this tax. For
example, under Superfund, the CEIT was levied only on corporations that
had income in excess of $2 million.[Footnote 29] In addition, while the
current collection system for corporate income taxes could be used to
collect this additional tax, this change would need to be communicated
to both corporate taxpayers and IRS tax examiners to promote
compliance.
Water Use Tax:
Implementing a tax on water use also would pose challenges such as
developing a collection system, deciding how to structure the tax, and
determining the tax base or which users to tax. Collecting this tax
could be difficult, because according to water and wastewater officials
we spoke with, it would most likely involve relying on some of the
billing systems in place for the nation's existing 50,000 community
water systems and over 16,000 publicly owned wastewater plants along
with other local government entities.[Footnote 30] However, all of
these water and wastewater suppliers do not uniformly bill their
customers based on the volume of water use. Instead, some charge a flat
fee or have other types of rate structures. Some stakeholders said that
a flat charge on households would be easier to administer, but that a
volume-based charge on water use would be more equitable. In addition,
decisions would need to be made regarding which users of the system--
households, commercial, and industrial--would be subject to the tax.
Industrial Discharge Tax:
Implementing an industrial discharge tax also could be difficult
because there is no federal system currently in place to charge and
collect such a tax. As a result, key steps, including defining the tax
base--whether to tax discharge permits or actual discharge--determining
a tax rate, and developing a collection and enforcement framework,
would need to be completed before such a tax could be implemented.
These efforts would likely be complicated by a lack of complete and
accurate data on the number of permit holders and quantity of
industrial discharge. Implementing such a tax would include the
following specific challenges:
* Permit-based tax. Determining which of the two types of NPDES
permits--individual or general--would be taxed and setting a tax rate
could be difficult.[Footnote 31] Individual permits are typically
issued for single facilities, such as wastewater treatment plants,
while a single general permit can cover multiple facilities that are
engaged in similar types of activities and located in a specific
geographic area, such as construction sites. According to EPA
officials, the types of effluent and levels of discharge covered by
these two types of permits can vary significantly and charging a flat
tax to all permit holders may not be equitable. In addition, because
EPA currently does not collect any taxes or fees on NPDES permits, the
agency would have to develop a basis for establishing a tax rate and
put in place a collection and enforcement framework before a permit-
based tax could be implemented.
* Discharge-based tax. Currently, EPA does not collect any taxes on
industrial discharges, and to implement such a tax would require EPA to
put in place a collection and enforcement framework. Developing such a
framework could be difficult because EPA does not have complete data on
the industrial discharges that are occurring or on the environmental
and human health hazards posed by such discharges. For example, while
the TRI has information on approximately 265 chemicals that are
discharged to water, these data are based on annual reports submitted
by industrial facilities. Moreover, EPA has limited national data on
the discharge of conventional pollutants to water because many
facilities that discharge these pollutants are not required to report
this information to EPA.[Footnote 32] In addition, determining a basis
for a tax rate could be difficult because of the potentially large
number of chemicals and their varying characteristics. While EPA has
developed toxic weighting factors that provide a relative measure of
the toxicity for most of the TRI chemicals, EPA officials told us that
there are inherent scientific difficulties in using existing toxicity
weighting systems to compare toxicity among chemicals. Specifically,
they told us that these systems may not adequately distinguish between
cancer and non-cancer hazards and considering all such hazards together
can be misleading. In addition, EPA has not developed toxic weighting
factors for all chemicals in the TRI. EPA officials pointed out that
these weighting factors were not developed for taxation purposes, and
they expressed concern that using the TRI for this purpose could
potentially discourage industries from reporting their full discharges
to the TRI. Such an outcome would be a significant concern given that
one of the TRI program's primary goals is to increase the public's
access to the best available information on toxic chemical releases in
their communities.
Obtaining Stakeholder and Industry Support for Funding Options Could
Pose Additional Challenges:
Consideration of stakeholders' and industry views is important in
developing a new taxation system, because voluntary compliance with any
tax is influenced by whether taxpayers view a tax as being transparent,
credible, and logical. While a majority of stakeholders supported three
of the eight funding options, we identified some stakeholders who had
not yet taken a position on these options, making it difficult to gauge
their level of support for these options.[Footnote 33] In addition,
industry groups representing most of the product groups that we
identified as potential funding options were generally opposed to
levying excise taxes on these products. Furthermore, obtaining
widespread stakeholder support may be difficult because many
stakeholders do not perceive a strong connection between most of these
funding options and wastewater infrastructure use.
Excise Taxes on Products That May Contribute to the Wastewater Stream:
The proportion of stakeholders supporting excise taxes on the five
product groups ranged from over a half to about a third. Specifically,
over half of stakeholders responding to our questionnaire supported
excise taxes on fertilizers and pesticides and flushable products, and
about half supported excise taxes on beverages and pharmaceuticals. In
contrast, only about a third of stakeholders supported an excise tax on
water appliances and plumbing fixtures. More importantly, we identified
some stakeholders who had not yet taken a position on any of the five
excise tax options--they neither supported nor opposed these options or
did not know or had no opinion on these options--making it unclear what
their level of support would be if excise taxes on these product groups
were proposed. Specifically, half of stakeholders responding to our
questionnaire had not yet taken a position on taxing water appliances
and plumbing fixtures, while about a third of stakeholders did not have
a position on taxing beverages or pharmaceuticals. Table 3 shows the
level of stakeholders' support for excise taxes on each of the five
product groups that we identified.
Table 3: Stakeholder Support for Excise Taxes (Number of stakeholders):
Product group: Beverages;
Strongly support or support: 10;
Neither support nor oppose: 6;
Strongly oppose or oppose: 2;
Don't know/no opinion: 1;
Included multiple responses: 1;
Total responses: 20.
Product group: Fertilizers and pesticides;
Strongly support or support: 11;
Neither support nor oppose: 4;
Strongly oppose or oppose: 3;
Don't know/no opinion: 0;
Included multiple responses: 1;
Total responses: 19.
Product group: Flushable products;
Strongly support or support: 12;
Neither support nor oppose: 4;
Strongly oppose or oppose: 2;
Don't know/no opinion: 0;
Included multiple responses: 1;
Total responses: 19.
Product group: Pharmaceuticals;
Strongly support or support: 9;
Neither support nor oppose: 5;
Strongly oppose or oppose: 4;
Don't know/no opinion: 1;
Included multiple responses: 0;
Total responses: 19.
Product group: Water appliances and plumbing fixtures;
Strongly support or support: 7;
Neither support nor oppose: 8;
Strongly oppose or oppose: 3;
Don't know/no opinion: 2;
Included multiple responses: 0;
Total responses: 20.
Source: GAO analysis of stakeholder responses.
Note: Not all stakeholders responded to each question, so the total
number of responses can vary. In addition, 1 stakeholder provided
multiple responses.
[End of table]
Obtaining stakeholder support for some of these excise taxes may be
difficult because stakeholders did not always see a strong connection
between these products and wastewater infrastructure use. For example,
about half of stakeholders did not see a strong connection between
pharmaceuticals and water appliances and plumbing fixtures and
wastewater infrastructure use. On the other hand, stakeholders saw a
strong connection between fertilizers and pesticides and flushable
products and wastewater infrastructure use. Taxing these two product
groups to fund a clean water trust fund also garnered the greatest
level of stakeholder support. Table 4 shows stakeholders' views on the
extent of the connection between wastewater infrastructure use and the
five product groups.
Table 4: Stakeholder Views on the Extent of the Connection between
Wastewater Infrastructure Use and Product Groups (Number of
stakeholders):
Product group: Beverages;
Great extent or very great extent: 8;
Moderate extent: 4;
Little or no extent: 3;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 18.
Product group: Fertilizers and pesticides;
Great extent or very great extent: 12;
Moderate extent: 2;
Little or no extent: 1;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 18.
Product group: Flushable products;
Great extent or very great extent: 12;
Moderate extent: 3;
Little or no extent: 0;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 18.
Product group: Pharmaceuticals;
Great extent or very great extent: 6;
Moderate extent: 7;
Little or no extent: 2;
Don't know/no opinion: 3;
Included multiple responses: 0;
Total responses: 18.
Product group: Water appliances and plumbing fixtures;
Great extent or very great extent: 5;
Moderate extent: 7;
Little or no extent: 3;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 18.
Source: GAO analysis of stakeholder responses.
Note: Not all stakeholders responded to each question, so the total
number of responses can vary. In addition, 1 stakeholder provided
multiple responses.
[End of table]
In addition, industry groups were consistently opposed to a tax on
their specific product groups to support a clean water trust fund. In
their view, their products did not contribute significantly to the
deterioration of wastewater infrastructure and therefore should not be
taxed. Stakeholder and industry reasons for their support or opposition
to these excise taxes, along with the views of wastewater utility
operators, are summarized in table 5.
Table 5: Stakeholder and Industry Reasons for Support or Opposition to
Excise Taxes on Specific Product Groups Along with Views of Utility
Operators:
Excise Tax: Beverages;
Reasons for stakeholder support[A]:
* The process for manufacturing relies heavily on clean water as an
input;
* Production and consumption of beverages generates waste;
* Purchases are discretionary;
Reasons for stakeholder opposition[A]:
* These products do not pose much of a burden to wastewater systems;
* Unfair to single out one industry for taxation;
* Producers already pay taxes and other fees for wastewater services;
Views of utility operators:
* Bottles can enter the wastewater stream and need to be removed and
disposed of;
Reasons for industry opposition[B]:
* Amount of water that beverage companies use is small;
* Companies already pay for the water they consume;
* Federal excise tax is already levied on alcoholic beverages and there
are state and local taxes on beverages;
* These companies already pay corporate and state income taxes.
Excise Tax: Fertilizers and pesticides;
Reasons for stakeholder support[A]:
* These products contribute to nonpoint source pollution;
Reasons for stakeholder opposition[A]:
* This would be an unfair tax on a product that does not impact
wastewater infrastructure;
* Unfair to single out one industry for taxation;
* Producers already pay taxes and other fees for wastewater services;
Views of utility operators:
* These are nonpoint source pollutants that affect surface waters and
do not necessarily go through wastewater treatment plants;
Reasons for industry opposition[B]:
* It was unlikely that fertilizers and pesticides applied on
agricultural land would enter a municipality's wastewater
infrastructure system and it would not be fair to tax these products in
order to fund this infrastructure;
* EPA already charges a fee to register pesticides, and several states
charge fees on fertilizers and pesticides.
Excise Tax: Flushable products;
Reasons for stakeholder support[A]:
* These products contribute to the wastewater burden faced by utility
operators and must be removed during the treatment process;
Reasons for stakeholder opposition[A]:
* The additional cost of treating these products is trivial during the
wastewater treatment process;
* Producers already pay taxes and other fees for wastewater services;
* These products include necessities;
Views of utility operators:
* Certain products in this group can pose a burden to wastewater
treatment plants, while others do not;
Reasons for industry opposition[B]:
* While some of these products could enter the wastewater stream, not
enough research had been done to determine the impact these products
have had on wastewater infrastructure;
* Levying a similar tax on all of these products would not be fair.
Excise Tax: Pharmaceuticals;
Reasons for stakeholder support[A]:
* Impact the quality of the nation's waters;
* Investment was already being made in drinking water infrastructure to
help remove these contaminants and similar investment may be needed in
wastewater infrastructure in the future;
Reasons for stakeholder opposition[A]:
* Pharmaceuticals are an essential product that is already expensive
for consumers;
* Unfair to single out one industry for taxation;
* Producers already pay taxes and other fees for wastewater services;
Views of utility operators:
* Removal of pharmaceuticals during wastewater treatment is not
currently required and if a tax were levied on pharmaceuticals to fund
wastewater infrastructure, the public could expect that pharmaceuticals
would be removed by wastewater treatment plants;
Reasons for industry opposition[B]:
* Could increase cost for consumers;
* Federal fees are in place for the registration of some prescription
drugs, and state sales taxes are in place for over-the-counter
pharmaceuticals;
* A tax focused on one industry is not broad based.
Excise Tax: Water appliances and plumbing fixtures;
Reasons for stakeholder support[A]:
* These appliances and fixtures can introduce flushable products into
the wastewater stream;
Reasons for stakeholder opposition[A]:
* Unfair to single out one industry for taxation;
* Producers already pay taxes and other fees for wastewater services;
Views of utility operators:
* Food scraps have to be removed during the wastewater treatment
process which is generally introduced into the waste stream by
dishwashers and garbage disposals;
* Higher efficiency appliances can release stronger effluents which
require additional treatment;
Reasons for industry opposition[B]:
* Would be a disincentive for consumers to buy newer, more efficient
appliances that conserved water and helped to lower the burden on
wastewater infrastructure.
Source: GAO analysis of stakeholder views.
[A] The views presented in these columns are from stakeholders that
responded to our questionnaire. They are national groups that represent
wastewater and drinking water industries, state and local governments,
engineers, and environmental groups.
[B] The views presented in this column are from industry groups we
interviewed that represented the manufacturers of some of the products
that were identified as potential funding options.
[End of table]
Additional Tax on Corporate Income:
About a third of stakeholders responding to our questionnaire (6 of 19)
opposed or strongly opposed this option. Another 7 stakeholders had not
taken a position on this funding option, making it unclear what their
level of support would be. Furthermore, of the eight funding options,
stakeholders saw the least connection between this funding option and
wastewater infrastructure use, with nearly two-thirds of stakeholders
(11 of 18) responding that there was little or no connection. In fact,
stakeholders' inability to see the connection was one of the reasons
they cited for their opposition to this funding option. Other reasons
that stakeholders provided for opposing this option were the current
economic crisis and that corporations already pay taxes and fees to
local systems for wastewater treatment services. Among the reasons that
stakeholders gave for supporting this option were that the nation, and
all industrial sectors, benefit from clean water, and this tax would be
spread across a number of different polluting industries.
Water Use Tax:
Stakeholder opposition to this funding option was the strongest of the
eight funding options we identified. Over half of stakeholders (11 of
21) that responded to our questionnaire opposed a water use tax to fund
a clean water trust fund. Some of these opponents said that such a tax
would infringe on the ability of local utilities to raise rates for
their own needs. Drinking water industry officials said that many
communities have adopted comprehensive asset management plans and
raised their water rates to pay for infrastructure needs, and it would
be unfair to tax all communities and then distribute money to those
communities that have not managed their systems well. In addition,
stakeholders we interviewed said that redistribution of tax revenue
would be a concern with this option if communities contributed more to
the trust fund than they received back in funding.[Footnote 34] They
also told us that a water use tax could disproportionately affect low-
income households because these households pay a larger portion of
their income for their water bills. On the other hand, 5 stakeholders
supported this funding option and some said that rates are still
relatively low in many parts of the country and local ratepayers should
pay for the costs of the infrastructure they use.
Industrial Discharge Tax:
Over a third of stakeholders (7 of 19) supported or strongly supported
an industrial discharge tax, while another 7 stakeholders neither
supported nor opposed this option. The most common reasons that
stakeholders gave for supporting this option was that industries should
pay for the pollution they discharge. Among the reasons that
stakeholders provided for opposing this option was that industrial
facilities already pay for wastewater services.
Agency Comments:
We provided a draft of this report to EPA and IRS for review and
comment. Neither agency provided written comments to us. EPA provided
technical comments, which we have incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the
Administrator of EPA, the Commissioner of IRS, and interested
congressional committees. In addition, the report will be available at
no charge on GAO's Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions regarding this report, please
contact me at (202) 512-3841 or mittala@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors to this report are
listed in appendix V.
Signed by:
Anu Mittal:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Scope and Methodology:
To determine stakeholders' views on the issues that need to be
addressed in designing and establishing a clean water trust fund, we
reviewed past legislative proposals and wastewater industry position
papers on establishing a clean water trust fund. In addition, we
interviewed over 50 different stakeholders with knowledge of a variety
of wastewater infrastructure issues, including individuals and groups
from the wastewater industry; industry associations; and federal,
state, and local government; and obtained their views on establishing
and designing a clean water trust fund. During this process, we
identified other relevant stakeholders to speak to by asking
interviewees to identify other knowledgeable stakeholders in this area
that we should contact, a process known as the "snowball" approach.
Based on the information obtained through these interviews and our
review of reports, we developed and sent a questionnaire to 28 national
organizations with expertise in one or more of the following areas:
financing of wastewater projects, constructing and maintaining
wastewater infrastructure, local and state wastewater infrastructure
needs, and environmental protection. Prior to sending out this
questionnaire, we pretested the questionnaire with stakeholders and
made changes based on their input. This questionnaire asked for their
views on how a clean water trust fund should be administered, the types
of activities it should fund, and how funding should be distributed. We
received responses from 22 of these stakeholders. Of the 6 stakeholders
that did not respond, 4 of these told us they could not come to a
consensus on behalf of their organization. For a list of the groups
that responded to the questionnaire, see appendix III. We also reviewed
information on the Clean Water State Revolving Fund (CWSRF) program and
interviewed federal and state officials responsible for implementing
this program to gain an understanding for how this program might
interact with a clean water trust fund.
We also visited three states--Arizona, Maryland, and Wisconsin--and the
District of Columbia where we interviewed state and local officials
about their wastewater infrastructure needs and how a clean water trust
fund could be designed to meet these needs. We selected these states
because they were geographically dispersed, had different wastewater
infrastructure needs, and used various approaches to finance wastewater
projects. On these visits, we toured wastewater facilities in large and
small cities and spoke with local and state officials about how they
were financing wastewater projects.
To identify and describe potential options for funding a clean water
trust fund that could generate $10 billion annually, we reviewed past
legislative proposals and position papers from wastewater industry
groups that discussed specific funding options for such a fund. We also
reviewed reports on how existing federal trust funds that support
environmental and infrastructure projects are funded and conducted
Internet searches to identify funding options that some states were
using to finance wastewater projects. Finally, we interviewed
stakeholders with knowledge of wastewater infrastructure issues,
including those from the wastewater industry and federal, state, and
local government to identify other options that could be used to
generate revenue for a clean water trust fund.
To estimate the revenue that these options could potentially generate,
we used the most recent government data available to estimate the value
of products or activities that could be subject to a federal tax--the
tax base--and applied a range of tax rates to these bases, which were
based on current or past taxation policies.
* For the five excise taxes we identified, we used the U.S. Census
Bureau (Census) data from the 2006 Annual Survey of Manufactures, which
provides data on the value of products manufactured domestically by
different industrial codes, known as North American Industry
Classification System (NAICS) codes.[Footnote 35] We identified
specific NAICS codes for the five groups of products that could be
subject to an excise tax. For three of our excise taxes--beverages,
fertilizers and pesticides, and pharmaceuticals--these products are
captured in a discrete set of NAICS codes according to Census
officials. For the two other product groups--flushable products, and
water appliances and plumbing fixtures--we examined prior reports to
examine how these products were defined, analyzed these NAICS codes
along with their descriptions, and worked with Census officials to
ensure our list of NAICS codes was reasonable. To this value of
products produced domestically, we added the value of products imported
and subtracted the value of products that were exported to determine
the tax base for these product groups.[Footnote 36] We made this
calculation because according to Internal Revenue Service (IRS)
officials, federal excise taxes are generally levied on imports but not
on exports. We then converted the values of these tax bases to 2009
constant dollars. Certain limitations exist with regard to our use of
these data to estimate potential revenue from the funding options.
Specifically, our use of NAICS codes for these groups of products may
include a wider range of products than would be part of actual excise
taxes on these products. In addition, due to data limitations, there
are certain products that are not captured in our tax bases. For
example, toilet paper is not included in our tax base for flushable
products because this product is grouped under a NAICS code with other
sanitary paper products that most likely would not impact wastewater
infrastructure, such as disposable diapers. To determine the
reliability of these data, we reviewed documentation from Census,
interviewed relevant officials, and conducted some basic logic testing
of the data, and we determined the data were sufficiently reliable for
our purposes. For our estimate of a per container charge on bottled and
canned beverages, we used Container Recycling Institute data on the
number of packaged beverages sold in the United States in 2006.
[Footnote 37] To determine the reliability of these data, we spoke with
officials familiar with these data and reviewed relevant documentation
on the data. We determined the data were sufficiently reliable for our
purposes.
* For our estimate of the corporate income tax, we used data from the
IRS 2006 Statistics of Income and identified the value of taxable
income that corporations had in this year. The amount of income subject
to tax at the corporate level includes taxable income less certain
deductions such as a corporation's net operating loss or other special
deductions. To determine the reliability of these data, we reviewed
documentation from IRS and interviewed relevant officials. We
determined the data were sufficiently reliable for our purposes.
* For our estimate of the water use tax, we used 1995 and 2000 data
from the United States Geological Survey (USGS) on estimates of water
delivered by public and private suppliers to domestic, commercial, and
industrial users.[Footnote 38] After consulting with USGS officials, we
estimated the use for residential, commercial, and industrial uses for
2000 based on information available in 1995. Specifically, we used the
2000 estimate for total public supply water deliveries and the 1995
estimate of the proportion of total water deliveries to domestic,
commercial, and industrial users in 1995 because the 2000 USGS report
included information on total water deliveries but did not include
information on types of users.[Footnote 39] To determine the
reliability of these data, we interviewed USGS officials and reviewed
relevant documentation on the data. We determined the data were
sufficiently reliable for our purposes. For our estimate of a flat
charge on household wastewater bills, we used Environmental Protection
Agency (EPA) data on the population served by publicly owned treatment
works to estimate the number of households that receive wastewater
services.[Footnote 40] To determine the reliability of these data, we
spoke with EPA officials and reviewed relevant documentation on the
data. We determined the data were sufficiently reliable for our
purposes.
* For our estimate of an industrial discharge tax, we examined data
from the National Pollutant Discharge Elimination System (NPDES) permit
system and the 2006 Toxics Release Inventory (TRI). For the NPDES
permit system, we determined there were not reliable national data on
the total number of NPDES permits issued. For the TRI, we determined
that these data were based on self-reported information from only
certain facilities that discharged above a certain level. Moreover,
these reports can be based on estimates rather than actual
measurements. The TRI also does not contain data on discharges of
conventional pollutants. Due to these data limitations, we determined
that these data were not sufficiently reliable to make an estimate of
the revenue that could be generated from a tax on industrial discharge.
After identifying the taxable bases for these different funding
options, we applied various tax rates to these bases based in part on
existing or past taxation policies. Our review of existing federal
excise taxes found that most excise taxes levied as a percentage of
sales range from 3 percent to 12 percent so we applied the rates of 1
percent, 3 percent, 5 percent, and 10 percent to our tax bases. For the
tax on corporate income, we used 0.1 percent because a 0.12 percent on
corporate income had been used to fund Superfund. For the water use
tax, we used existing and proposed water taxes as the basis for the tax
rates we applied. For all of the funding options, we also calculated
the tax rate that would be needed to generate $10 billion annually.
The revenue estimates presented in our report are not official revenue
estimates as would be prepared by the Joint Committee on Taxation, and
they are subject to various limitations. For example, we did not model
consumer or market responses to these funding options, the potential
extent of noncompliance, or estimate the cost of implementing and
enforcing these options. As a result, our revenue estimates may be
higher than actual receipts that would be generated from these funding
options. Ultimately, the amount of revenue that any of these options
would generate would depend heavily on the number of products that
would be taxed, the tax rate used, and the compliance with the tax.
To identify the challenges associated with implementing these different
funding options, we interviewed federal and state officials who might
be involved in collecting and enforcing these taxes. At the federal
level, we spoke with IRS officials who collect and enforce excise taxes
and corporate income taxes. For the water use tax, we also spoke with
representatives of wastewater and drinking water utilities to learn
about how they collect fees from the users of their systems and how a
federal tax on water might make use of these systems. We also spoke
with officials who were involved in taxing some of these products
already. At the federal level, we spoke with officials in the Alcohol
and Tobacco Tax Trade Bureau regarding the federal excise tax on
alcoholic beverages, and we also spoke with EPA officials about the
fees the agency levies on pesticides. On our state visits, we spoke
with officials who had experience with implementing some of these
funding options as well.
To identify stakeholders' views of these funding options, we examined
position papers that discussed these funding options. We also used our
questionnaire to gauge stakeholder support for these options and to
learn about their views on the connection between these options and
wastewater infrastructure use. In addition, we spoke with industry
groups that represented some of the products that could be targeted by
excise taxes for their views. In particular, we spoke with groups
representing many of the manufacturers in the following industries:
beverages, fertilizers and pesticides, flushable products,
pharmaceuticals, and water appliances and plumbing fixtures.
We conducted our work from June 2008 to May 2009 in accordance with all
sections of GAO's quality assurance framework that are relevant to our
objectives. The framework requires that we plan and perform the
engagement to obtain sufficient and appropriate evidence to meet our
stated objectives and to discuss any limitations in our work. We
believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions.
[End of section]
Appendix II: Summary of Stakeholder Responses to Questionnaire:
This appendix provides information on stakeholders' responses to our
questionnaire about their views on the issues that need to be addressed
in designing and establishing a trust fund as well as their views on
the potential funding options that could be used for this fund. A list
of stakeholders that responded to the questionnaire is presented in
Appendix III.
Table 6: Stakeholder Views on Administration:
Which entity or entities should administer a clean water trust fund?
EPA only;
Number of Stakeholders: 0.
EPA partnership with the states (like the current CWSRF);
Number of Stakeholders: 15.
Independent, non-governmental board of trustees;
Number of Stakeholders: 0.
Other;
Number of Stakeholders: 4.
Don't know/no opinion;
Number of Stakeholders: 1.
Total responses;
Number of Stakeholders: 20.
No response;
Number of Stakeholders: 2.
Source: GAO analysis of stakeholder responses.
[End of table]
Table 7: Stakeholder Views on Use of a Trust Fund:
In your opinion, how, if at all, should a clean water trust fund be
used?
A trust fund should be used only to fund the existing CWSRF;
Number of Stakeholders: 7.
A trust fund should not be used to fund the existing CWSRF but rather a
separate and distinct program to support wastewater infrastructure;
Number of Stakeholders: 3.
A trust fund should be used partially to fund the existing CWSRF along
with a separate and distinct program to support wastewater
infrastructure;
Number of Stakeholders: 5.
A trust fund should not be created for the purpose of funding
wastewater infrastructure;
Number of Stakeholders: 3.
Other;
Number of Stakeholders: 2.
Don't know/no opinion;
Number of Stakeholders: 0.
Total responses;
Number of Stakeholders: 20.
No response;
Number of Stakeholders: 2.
Source: GAO analysis of stakeholder responses.
[End of table]
Table 8: Stakeholder Views on Funding Distribution:
How should funding from a clean water trust fund be distributed to
support wastewater projects?
Loans only (like the current CWSRF);
Number of Stakeholders: 3.
Grants only;
Number of Stakeholders: 2.
Combination of loans and grants;
Number of Stakeholders: 13.
Other;
Number of Stakeholders: 3.
Don't know/no opinion;
Number of Stakeholders: 0.
Total responses;
Number of Stakeholders: 21.
No response;
Number of Stakeholders: 1.
Source: GAO analysis of stakeholder responses.
[End of table]
Table 9: Stakeholder Views on What Activities Should be Eligible for
Funds:
In your opinion, what wastewater infrastructure activities should be
eligible for funding from a clean water trust fund?
Routine operations and maintenance:
Yes: 2;
No: 17;
Don't know/no opinion: 1;
Indicated both Yes and No: 1;
Total responses: 21;
No response: 1.
Planning and design of wastewater projects:
Yes: 18;
No: 2;
Don't know/no opinion: 0;
Indicated both Yes and No: 1;
Total responses: 21;
No response: 1.
Ratepayer assistance to low-income households:
Yes: 10;
No: 9;
Don't know/no opinion: 1;
Indicated both Yes and No: 0;
Total responses: 20;
No response: 2.
Capital costs:
Yes: 19;
No: 1;
Don't know/no opinion: 0;
Indicated both Yes and No: 1;
Total responses: 21;
No response: 1.
Source: GAO analysis of stakeholder responses.
[End of table]
Table 10: Stakeholder Views on Eligible Capital Costs:
If, in your opinion, capital costs should be eligible for funding from
a clean water trust fund, which of the following activities should be
included as capital costs?
Replacement or rehabilitation of wastewater collection systems or
treatment facilities (beyond normal maintenance);
Number of Stakeholders: 20.
Expansion of wastewater collection systems or treatment facilities for
existing needs;
Number of Stakeholders: 18.
Expansion of wastewater collection systems or treatment facilities for
population growth;
Number of Stakeholders: 10.
Construction of new wastewater treatment facilities;
Number of Stakeholders: 17.
Secondary wastewater treatment;
Number of Stakeholders: 17.
Advanced wastewater treatment;
Number of Stakeholders: 18.
Combined sewer overflow correction or elimination;
Number of Stakeholders: 19.
Infiltration/inflow correction;
Number of Stakeholders: 18.
Other;
Number of Stakeholders: 8.
Don't know/no opinion;
Number of Stakeholders: 0.
Source: GAO analysis of stakeholder responses.
[End of table]
Table 11: Stakeholder Views on Eligibility for Funds:
What factors should be considered in determining what entities should
be eligible for receiving funding from a clean water trust fund?
Wastewater infrastructure needs;
Number of Stakeholders: 15.
Priority of environmental problem to be addressed;
Number of Stakeholders: 12.
Priority of waters or watersheds involved;
Number of Stakeholders: 11.
Population;
Number of Stakeholders: 4.
Median household income;
Number of Stakeholders: 9.
Other (please specify);
Number of Stakeholders: 9.
Don't know/no opinion;
Number of Stakeholders: 0.
Source: GAO analysis of stakeholder responses.
[End of table]
Table 12: Stakeholder Support for Funding Options:
Do you support or oppose the following funding options?
Beverages (beverages manufactured for consumption including soft
drinks, bottled water, ice, beer, wine, and liquor but excluding fruit
and vegetable juices and concentrates):
Strongly support: 8;
Support: 2;
Neither support nor oppose: 6;
Oppose: 0;
Strongly oppose: 2;
Don't know/no opinion: 1;
Included multiple responses: 1;
Total responses: 20;
No response: 2.
Fertilizers and pesticides:
Strongly support: 7;
Support: 4;
Neither support nor oppose: 4;
Oppose: 1;
Strongly oppose: 1;
Don't know/no opinion: 0;
Included multiple responses: 1;
Total responses: 18;
No response: 4.
Flushable products (including products introduced directly into
wastewater, such as soaps, detergents, toilet paper, and cooking oils):
Strongly support: 7;
Support: 5;
Neither support nor oppose: 4;
Oppose: 0;
Strongly oppose: 2;
Don't know/no opinion: 0;
Included multiple responses: 1;
Total responses: 19;
No response: 3.
Pharmaceuticals:
Strongly support: 3;
Support: 6;
Neither support nor oppose: 5;
Oppose: 2;
Strongly oppose: 2;
Don't know/no opinion: 1;
Included multiple responses: 0;
Total responses: 19;
No response: 3.
Water appliances and plumbing fixtures (including fixtures and
appliances that introduce flow into the wastewater system, such as
washing machines, dishwashers, and showerheads):
Strongly support: 2;
Support: 5;
Neither support nor oppose: 8;
Oppose: 0;
Strongly oppose: 3;
Don't know/no opinion: 2;
Included multiple responses: 0;
Total responses: 20;
No response: 2.
Additional tax on corporate income (tax on the incomes of corporations
in addition to any existing corporate income tax):
Strongly support: 4;
Support: 1;
Neither support nor oppose: 7;
Oppose: 3;
Strongly oppose: 3;
Don't know/no opinion: 1;
Included multiple responses: 0;
Total responses: 19;
No response: 3.
Water use tax (water consumption by local utility users):
Strongly support: 3;
Support: 2;
Neither support nor oppose: 3;
Oppose: 4;
Strongly oppose: 7;
Don't know/no opinion: 1;
Included multiple responses: 1;
Total responses: 21;
No response: 1.
Industrial discharge tax (tax on industrial pollutants released into
water and/or fee on permits allowing these releases):
Strongly support: 4;
Support: 3;
Neither support nor oppose: 7;
Oppose: 1;
Strongly oppose: 2;
Don't know/no opinion: 1;
Included multiple responses: 1;
Total responses: 19;
No response: 3.
Source: GAO analysis of stakeholder responses.
[End of table]
Table 13: Stakeholder Views on Funding Options:
In considering funding options for a clean water trust fund, to what
extent is there a connection between wastewater infrastructure use and
the following products or activities?
Beverages (beverages manufactured for consumption including soft
drinks, bottled water, ice, beer, wine, and liquor but excluding fruit
and vegetable juices and concentrates):
Little or no extent: 3;
Moderate extent: 4;
Great extent: 3;
Very great extent: 5;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 18;
No response: 4.
Fertilizers and pesticides:
Little or no extent: 1;
Moderate extent: 2;
Great extent: 5;
Very great extent: 7;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 18;
No response: 4.
Flushable products (including products introduced directly into
wastewater, such as soaps, detergents, toilet paper, and cooking oils):
Little or no extent: 0;
Moderate extent: 3;
Great extent: 4;
Very great extent: 8;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 18;
No response: 4.
Pharmaceuticals:
Little or no extent: 2;
Moderate extent: 7;
Great extent: 2;
Very great extent: 4;
Don't know/no opinion: 3;
Included multiple responses: 0;
Total responses: 18;
No response: 4.
Water appliances and fixtures (including fixtures and appliances that
introduce flow into the wastewater system, such as washing machines,
dishwashers, and showerheads):
Little or no extent: 3;
Moderate extent: 7;
Great extent: 3;
Very great extent: 2;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 18;
No response: 4.
Additional tax on corporate income (tax on the incomes of corporations
in addition to any existing corporate income tax):
Little or no extent: 11;
Moderate extent: 0;
Great extent: 2;
Very great extent: 2;
Don't know/no opinion: 3;
Included multiple responses: 0;
Total responses: 18;
No response: 4.
Water use tax (water consumption by local utility users):
Little or no extent: 1;
Moderate extent: 6;
Great extent: 1;
Very great extent: 4;
Don't know/no opinion: 2;
Included multiple responses: 1;
Total responses: 15;
No response: 7.
Industrial discharge tax (tax on industrial pollutants released into
water and/or fee on permits allowing these releases):
Little or no extent: 3;
Moderate extent: 2;
Great extent: 6;
Very great extent: 5;
Don't know/no opinion: 2;
Included multiple responses: 0;
Total responses: 18;
No response: 4.
Source: GAO analysis of stakeholder responses.
[End of table]
[End of section]
Appendix III: Stakeholders Responding to Questionnaire on a National
Clean Water Trust Fund:
The following stakeholders responded to our questionnaire regarding the
issues that need to be addressed in designing and establishing a
national clean water trust fund as well as potential funding options
that could be used for this fund.
American Council of Engineering Companies American Public Works
Association:
American Rivers:
American Society of Civil Engineers:
American Water Works Association:
Associated General Contractors of America:
Association of Metropolitan Water Agencies:
Clean Water Action:
Clean Water Construction Coalition:
Council of Infrastructure Financing Authorities:
Environmental Financial Advisory Board:
Food & Water Watch:
National Association of Clean Water Agencies:
National Association of Counties:
National Association of Water Companies:
National Governors Association:
National League of Cities:
Natural Resources Defense Council:
National Rural Water Association:
National Utility Contractors Association:
Water and Wastewater Equipment Manufacturers Association:
Water Environment Federation:
[End of section]
Appendix IV: Estimated Tax Bases for Excise Tax Funding Options:
To estimate the tax base for products that may contribute to the
wastewater stream, we added the value of products manufactured
domestically and the value of products imported and subtracted the
value of products exported. This appendix provides information on (1)
the specific industrial classification codes we used to define product
groups, (2) the value of products manufactured from the U.S. Census
Bureau's (Census) 2006 Annual Survey of Manufactures, and (3) the value
of imports and exports from Census' Foreign Trade Division that we used
to develop the tax bases for the five product groups discussed in this
report.
Table 14: Estimated Tax Bases for Excise Tax Funding Options:
Industry code: Beverages: 312111--Soft Drink Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing soft drinks and artificially carbonated waters;
Value of products manufactured[A] ($1,000): $33,390,638;
Value of products imported ($1,000): $1,444,530;
Value of products exported ($1,000): $330,652;
Estimated: tax base: ($1,000): $34,504,516.
Industry code: Beverages: 312112--Bottled Water Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
purifying and bottling water (including naturally carbonated);
Value of products manufactured[A] ($1,000): $5,726,380;
Value of products imported ($1,000): $276,634;
Value of products exported ($1,000): $58,418;
Estimated: tax base: ($1,000): $5,944,596.
Industry code: Beverages: 312113 -Ice Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing ice;
Value of products manufactured[A] ($1,000): $541,298;
Value of products imported ($1,000): $21,631;
Value of products exported ($1,000): $43,303;
Estimated: tax base: ($1,000): $519,626.
Industry code: Beverages: 312120--Breweries;
Description of U.S. industry: Establishments primarily engaged in
brewing beer, ale, malt liquors, and nonalcoholic beer;
Value of products manufactured[A] ($1,000): $21,490,482;
Value of products imported ($1,000): $3,595,158;
Value of products exported ($1,000): $382,596;
Estimated: tax base: ($1,000): $24,703,044.
Industry code: Beverages: 312130--Wineries;
Description of U.S. industry: Establishments primarily engaged in one
or more of the following: (1) growing grapes and manufacturing wine and
brandies; (2) manufacturing wine and brandies from grapes and other
fruits grown elsewhere; and (3) blending wines and brandies;
Value of products manufactured[A] ($1,000): $11,258,241;
Value of products imported ($1,000): $4,870,764;
Value of products exported ($1,000): $899,739;
Estimated: tax base: ($1,000): $15,229,266.
Industry code: Beverages: 312140--Distilleries;
Description of U.S. industry: Establishments primarily engaged in one
or more of the following: (1) distilling potable liquors (except
brandies); (2) distilling and blending liquors; and (3) blending and
mixing liquors and other ingredients;
Value of products manufactured[A] ($1,000): $5,647,946;
Value of products imported ($1,000): $3,826,417;
Value of products exported ($1,000): $941,313;
Estimated: tax base: ($1,000): $8,533,050.
Industry code: Beverages: Total in 2006 dollars;
Value of products manufactured[A] ($1,000): $78,054,985;
Value of products imported ($1,000): $14,035,134;
Value of products exported ($1,000): $2,656,021;
Estimated: tax base: ($1,000): $89,434,098.
Industry code: Beverages: Total in 2009 dollars;
Estimated: tax base: ($1,000): $95,551,292.
Industry code: Fertilizers and Pesticides: 325311--Nitrogenous
Fertilizer Manufacturing;
Description of U.S. industry: Establishments primarily engaged in one
or more of the following: (1) manufacturing nitrogenous fertilizer
materials and mixing ingredients into fertilizers; (2) manufacturing
fertilizers from sewage or animal waste; and (3) manufacturing
nitrogenous materials and mixing them into fertilizers;
Value of products manufactured[A] ($1,000): $4,623,263;
Value of products imported ($1,000): $4,090,027;
Value of products exported ($1,000): $3,202,041;
Estimated: tax base: ($1,000): $5,511,249.
Industry code: Fertilizers and Pesticides: 325312--Phosphatic
Fertilizer Manufacturing;
Description of U.S. industry: Establishments primarily engaged in one
of the following: (1) manufacturing phosphatic fertilizer materials or
(2) manufacturing phosphatic materials and mixing them into
fertilizers;
Value of products manufactured[A] ($1,000): $4,923,271;
Value of products imported ($1,000): $1,581,435;
Value of products exported ($1,000): $100,860;
Estimated: tax base: ($1,000): $6,403,846.
Industry code: Fertilizers and Pesticides: 325320--Pesticide and Other
Agricultural Chemical Manufacturing;
Description of U.S. industry: Establishments primarily engaged in the
formulation and preparation of agricultural and household pest control
chemicals (except fertilizers);
Value of products manufactured[A] ($1,000): $13,977,846;
Value of products imported ($1,000): $632,346;
Value of products exported ($1,000): $2,107,493;
Estimated: tax base: ($1,000): $12,502,699.
Industry code: Fertilizers and Pesticides: Total in 2006 dollars;
Value of products manufactured[A] ($1,000): $23,524,380;
Value of products imported ($1,000): $6,303,808;
Value of products exported ($1,000): $5,410,394;
Estimated: tax base: ($1,000): $24,417,794.
Industry code: Fertilizers and Pesticides: Total in 2009 dollars;
Estimated: tax base: ($1,000): $26,087,944.
Industry code: Flushable products: 325611--Soap and Other Detergent
Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing and packaging soaps and other detergents, such as laundry
detergents, dishwashing detergents, toothpaste gels and tooth powders,
and natural glycerin;
Value of products manufactured[A] ($1,000): $19,329,678;
Value of products imported ($1,000): $1,240,295;
Value of products exported ($1,000): $2,116,075;
Estimated: tax base: ($1,000): $18,453,898.
Industry code: Flushable products: 325620--Toilet Preparation
Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
preparing, blending, compounding, and packaging toilet preparations,
such as perfumes, shaving preparations, hair preparations, face creams,
lotions (including sunscreens), and other cosmetic preparations;
Value of products manufactured[A] ($1,000): $32,212,490;
Value of products imported ($1,000): $4,273,115;
Value of products exported ($1,000): $5,146,411;
Estimated: tax base: ($1,000): $31,339,194.
Industry code: Flushable products: 311225--Fats and Oils Refining and
Blending;
Description of U.S. industry: Establishments primarily engaged in one
or more of the following: (1) manufacturing shortening and margarine
from purchased fats and oils; (2) refining and/or blending vegetable,
oilseed, and tree nut oils from purchased oils; and (3) blending
purchased animal fats with purchased vegetable fats;
Value of products manufactured[A] ($1,000): $9,622,999;
Value of products imported ($1,000): $145,283;
Value of products exported ($1,000): $369,123;
Estimated: tax base: ($1,000): $9,399,159.
Industry code: Flushable products: Total in 2006 dollars;
Value of products manufactured[A] ($1,000): $61,165,167;
Value of products imported ($1,000): $5,658,693;
Value of products exported ($1,000): $7,631,610;
Estimated: tax base: ($1,000): $59,192,251.
Industry code: Flushable products: Total in 2009 dollars;
Estimated: tax base: ($1,000): $63,240,936.
Industry code: Pharmaceuticals: 325412--Pharmaceutical Preparation
Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing in-vivo diagnostic substances and pharmaceutical
preparations (except biological) intended for internal and external
consumption in dose forms, such as ampoules, tablets, capsules, vials,
ointments, powders, solutions, and suspensions;
Value of products manufactured[A] ($1,000): $128,015,626;
Value of products imported ($1,000): $38,054,220;
Value of products exported ($1,000): $19,992,646;
Estimated: tax base: ($1,000): $146,077,200.
Industry code: Pharmaceuticals: Total in 2006 dollars;
Value of products manufactured[A] ($1,000): $128,015,626;
Value of products imported ($1,000): $38,054,220;
Value of products exported ($1,000): $19,992,646;
Estimated: tax base: ($1,000): $146,077,200.
Industry code: Pharmaceuticals: Total in 2009 dollars;
Estimated: tax base: ($1,000): $156,068,719.
Industry code: Water Appliances and Plumbing Fixtures: 333312--
Commercial Laundry, Drycleaning, and Pressing Machine Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing commercial and industrial laundry and drycleaning
equipment and pressing machines;
Value of products manufactured[A] ($1,000): $621,459;
Value of products imported ($1,000): [B];
Value of products exported ($1,000): [B];
Estimated: tax base: ($1,000): $621,459.
Industry code: Water Appliances and Plumbing Fixtures: 335224 --
Household Laundry Equipment Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing household-type laundry equipment;
Value of products manufactured[A] ($1,000): $5,087,524;
Value of products imported ($1,000): $1,708,490;
Value of products exported ($1,000): $964,516;
Estimated: tax base: ($1,000): $5,831,498.
Industry code: Water Appliances and Plumbing Fixtures: 335228--Other
Major Household Appliance Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing electric and nonelectric major household-type appliances
(except cooking equipment, refrigerators, upright and chest freezers,
and household-type laundry equipment). Illustrative examples of these
appliances include dishwashers, garbage disposals, and hot water
heaters;
Value of products manufactured[A] ($1,000): $3,944,090;
Value of products imported ($1,000): $1,379,618;
Value of products exported ($1,000): $746,113;
Estimated: tax base: ($1,000): $4,577,595.
Industry code: Water Appliances and Plumbing Fixtures: 327111 --
Vitreous China Plumbing Fixture and China and Earthenware Bathroom
Accessories Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing vitreous china plumbing fixtures and china and
earthenware bathroom accessories, such as faucet handles, towel bars,
and soap dishes;
Value of products manufactured[A] ($1,000): $728,507;
Value of products imported ($1,000): $855,586;
Value of products exported ($1,000): $125,778;
Estimated: tax base: ($1,000): $1,458,315.
Industry code: Water Appliances and Plumbing Fixtures: 332998 --
Enameled Iron and Metal Sanitary Ware Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing enameled iron and metal sanitary ware;
Value of products manufactured[A] ($1,000): $1,438,325;
Value of products imported ($1,000): $488,088;
Value of products exported ($1,000): $91,995;
Estimated: tax base: ($1,000): $1,834,418.
Industry code: Water Appliances and Plumbing Fixtures: 326191 --
Plastics Plumbing Fixture Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing plastics or fiberglass plumbing fixtures, such as plastic
or fiberglass bathtubs, hot tubs, portable toilets, and shower stalls;
Value of products manufactured[A] ($1,000): $4,527,048;
Value of products imported ($1,000): $158,960;
Value of products exported ($1,000): $68,068;
Estimated: tax base: ($1,000): $4,617,940.
Industry code: Water Appliances and Plumbing Fixtures: 332913 --
Plumbing Fixture Fitting and Trim Manufacturing;
Description of U.S. industry: Establishments primarily engaged in
manufacturing metal and plastics plumbing fixture fittings and trim,
such as faucets, flush valves, and shower heads;
Value of products manufactured[A] ($1,000): $3,821,468;
Value of products imported ($1,000): $1,341,991;
Value of products exported ($1,000): $221,516;
Estimated: tax base: ($1,000): $4,941,943.
Industry code: Water Appliances and Plumbing Fixtures: Total in 2006
dollars;
Value of products manufactured[A] ($1,000): $20,168,421;
Value of products exported ($1,000): $5,932,733;
Value of products exported ($1,000): $2,217,986;
Estimated: tax base: ($1,000): $23,883,168.
Industry code: Water Appliances and Plumbing Fixtures: Total in 2009
dollars;
Estimated: tax base: ($1,000): $25,516,750.
Source: GAO analysis of Census data from the 2006 Annual Survey of
Manufactures and Foreign Trade Division.
[A] This column represents the "Value of Product Shipments," which
Census defines as the value of products produced domestically.
[B] Import and export data for NAICS code 333312 are reflected in NAICS
code 335224.
[End of table]
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Anu K. Mittal, (202) 512-3841, or mittala@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Sherry L. McDonald,
Assistant Director; Janice Ceperich; Nancy Crothers; Cindy Gilbert; and
Scott Heacock made significant contributions to this report. Also
contributing to this report were George Bogart, Richard Eiserman, Carol
Henn, Sarah Reyneveld, Anne Stevens, Jack Warner, and James Wozny.
[End of section]
Footnotes:
[1] EPA, The Clean Water and Drinking Water Infrastructure Gap Analysis
(Washington, D.C., September 2002). In the report, EPA noted that this
gap is not inevitable and could be addressed in part if wastewater
utilities raised the rates they charge consumers. EPA estimates a
potential gap for drinking water infrastructure as well.
[2] The Federal Water Pollution Control Act Amendments of 1972, Pub. L.
No. 92-500, § 2, 86 Stat. 816 (commonly referred to as the Clean Water
Act).
[3] Pub. L. 111-5, Div. A, Tit. VII, 123 Stat. 115, 169.
[4] An excise tax is a tax levied on the manufacture, sale, or
consumption of various commodities.
[5] Wastewater treatment generally involves two steps, called primary
and secondary treatment. During primary treatment, solid materials such
as sand and grit are removed from wastewater. Secondary treatment
usually involves using bacteria to remove organic material from
wastewater. Under the Clean Water Act, municipal wastewater treatment
plants are required to provide secondary treatment for wastewater. In
addition, over 30 percent of wastewater treatment plants also provide
advanced treatment for wastewater, which can purify wastewater to even
greater levels.
[6] Fiscal year 2006 includes data for each individual government's
fiscal year that ended between July 1, 2005, and June 30, 2006.
[7] American Society of Civil Engineers, 2009 Report Card for America's
Infrastructure (Reston, Va., Mar. 25, 2009).
[8] EPA, The Clean Water and Drinking Water Infrastructure Gap Analysis
(Washington, D.C., September 2002).
[9] CBO, Future Investment in Drinking Water and Wastewater
Infrastructure (Washington, D.C., November 2002).
[10] Many of these options were discussed by stakeholders at an EPA
forum. See EPA, Closing the Gap: Innovative Solutions for America's
Water Infrastructure Forum (Washington, D.C., Jan. 31, 2003).
[11] Our past work has found that many utilities were not routinely
charging the full cost for the wastewater services they provided. See
GAO, Water Infrastructure: Information on Financing, Capital Planning,
and Privatization, [hyperlink, http://www.gao.gov/products/GAO-02-764]
(Washington, D.C.: Aug. 16, 2002). In addition, we have found that the
practice of systematically identifying and planning for wastewater
infrastructure improvements, known as asset management, could help
these wastewater utilities better address their infrastructure needs.
See GAO, Water Infrastructure: Comprehensive Asset Management Has
Potential to Help Utilities Better Identify Needs and Plan Future
Investments, [hyperlink, http://www.gao.gov/products/GAO-04-461]
(Washington, D.C.: Mar. 19, 2004).
[12] Environmental Financial Advisory Board, Relative Benefits of
Direct and Leveraged Loans in State Revolving Loan Fund (SRF) Programs
(Aug. 28, 2008).
[13] In the 110th Congress, three bills were introduced to create such
a bank or entity: National Infrastructure Bank Act of 2007 (S. 1926 and
H.R. 3401); the National Infrastructure Development Act of 2007 (H.R.
3896); and the Build America Bonds Act of 2007 (S. 2021).
[14] Our previous work has found that public-private partnerships can
entail potential costs and tradeoffs and should be reviewed to
determine whether they are appropriate in specific circumstances and,
if so, how best to implement them. See GAO, Highway Public-Private
Partnerships: More Rigorous Up-front Analysis Could Better Secure
Potential Benefits and Protect the Public Interest, [hyperlink,
http://www.gao.gov/products/GAO-08-44] (Washington, D.C.: Feb. 8,
2008).
[15] H.R. 6194, which was introduced in the 110th Congress, The
Sustainable Water Infrastructure Development Act of 2008, proposed
lifting the caps on private activity bonds for water and wastewater
projects.
[16] In addition, some stakeholders we interviewed raised the issue of
how a clean water trust fund would be funded. We discuss potential
revenue sources for a clean water trust fund in the next section of
this report.
[17] Twenty-two stakeholders responded to our questionnaire; however,
because not all stakeholders responded to each question, the total
number of responses can vary for each question.
[18] See GAO, Clean Water: How States Allocate Revolving Loan Funds and
Measure Their Benefits, [hyperlink,
http://www.gao.gov/products/GAO-06-579] (Washington, D.C.: June 5,
2006).
[19] [hyperlink, http://www.gao.gov/products/GAO-02-764] and
[hyperlink, http://www.gao.gov/products/GAO-04-461].
[20] A 1996 study by EPA provided information on using some of these
products to provide funding for wastewater infrastructure. It noted
that "Currently, little empirical data exist by which to document the
volume and toxicity of most potential fee targets. This limitation,
which research might address over time, results in a significant
selection bias when products are selected for their link to water
pollution." EPA, Alternative Funding Study: Water Quality Fees and Debt
Financing Issues (June 1996).
[21] If any of the products in these product groups were excluded or
exempted from an excise tax, the tax base would decline and higher tax
rates would be needed to raise similar amounts of money. For example,
if the excise tax on beverages did not include alcoholic beverages, the
tax base for this product group would decline by over 50 percent to
about $44 billion, and the tax rate required to raise $10 billion would
increase to about 25 percent.
[22] Container Recycling Institute, Wasting and Recycling Trends:
Conclusions from CRI's 2008 Beverage Market Data Analysis (Glastonbury,
Conn., December 2008).
[23] The Superfund program, which Congress established in 1980 to
address the threats that hazardous waste sites pose to human health and
the environment, was funded partly by an environmental tax on
corporations that was imposed in 1986 and expired in 1995. The proceeds
of this tax went to the Hazardous Substance Superfund Trust Fund and it
was the fund's largest single source of revenue. The tax raised $612
million in fiscal year 1995.
[24] USGS Circular 1268, Estimated Use of Water in the United States in
2000 (Reston, Va., 2004) and USGS Circular 1200, Estimated Use of Water
in the United States in 1995 (Denver, Colo., 1998).
[25] This $30 charge, known as the Bay Restoration fee, helps to
provide funding to upgrade wastewater treatment plants and septic
systems in Maryland. In addition to households, commercial and
industrial customers also are charged this fee.
[26] A flat charge also could be applied to industrial and commercial
users, but data are not available on the number of these system users.
[27] Under the Emergency Planning and Community Right to Know Act
(EPCRA) of 1986, certain facilities must submit an annual report to EPA
for each TRI chemical that they manufacture, process, or otherwise use
in excess of certain thresholds. Pub. L. No. 99-499, § 313, 100 Stat.
1728, 1741.
[28] In order to provide the information EPCRA requires, the owner or
operator of a facility may use readily available data (including
monitoring data) collected pursuant to other provisions of law, or,
where such data are not readily available, reasonable estimates of the
amounts involved.
[29] In particular, the CEIT was levied on corporations' modified
alternative minimum taxable income over $2 million.
[30] Also, to the extent that collection of such a tax on behalf of the
federal government constitutes local government administration of a
federal regulatory program, there may be constitutional issues
associated with this option. We express no view as to how these issues
may best be avoided.
[31] NPDES permits generally allow a point source to discharge
specified pollutants into federal regulated water under specific limits
and conditions. These permits are issued by EPA or a state agency
authorized to implement the NPDES program. Currently, 46 states are
authorized to administer the NPDES program.
[32] The five conventional pollutants are biological oxygen demand, pH,
oils and greases, total suspended solids, and fecal coliform bacteria.
[33] We sent out questionnaires to 28 stakeholders and received 22
responses. However, not all stakeholders responded to each question, so
the total number of responses can vary for each question.
[34] Under the Highway Trust Fund, the users of highways from some
states contribute more to the fund than they receive in return, also
known as "donor states." Meanwhile, "donee states" are those that
receive more from the trust fund than they contribute. See
Congressional Research Service, Federal-Aid Highway Program: "Donor-
Donee" State Issues (Washington, D.C., June 10, 2005).
[35] NAICS was developed as the standard for use by federal statistical
agencies in classifying business establishments for the collection,
analysis, and publication of statistical data related to the business
economy of the United States. NAICS was developed under the auspices of
the Office of Management and Budget and adopted in 1997 to replace the
Standard Industrial Classification system.
[36] The value of products that were imported or exported came from the
Foreign Trade Division of Census.
[37] Container Recycling Institute, Wasting and Recycling Trends:
Conclusions from CRI's 2008 Beverage Market Data Analysis (Glastonbury,
Conn., 2008).
[38] These data are available in USGS Circular 1268, Estimated Use of
Water in the United States in 2000 (Reston, Va., 2004) and USGS
Circular 1200, Estimated Use of Water in the United States in 1995
(Denver, Colo., 1998).
[39] We excluded estimates for water delivered for thermoelectric power
and public uses or losses because these uses typically do not impact
the wastewater stream and generally public use water is not billed by
the public supplier.
[40] These data are available in EPA's Clean Watersheds Needs Survey
2004 (January 2008).
[End of section]
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